Thursday, 19 May, 2022
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The rupee fell past 70/$ and recovered. But don’t take your seatbelts off just yet

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Chaos in emerging markets threatens to take the rupee beyond 70.50 by year-end, and America’s Iran threat is making it worse.

New Delhi: Pressure on the Indian rupee, which breached 70 to a dollar before recovering marginally Tuesday, is unlikely to let up amid uncertainty in emerging markets including Russia, China and Turkey, analysts said.

According to currency analysts, the rupee could even hit 70.50 to a dollar before the year-end, despite the efforts of the Reserve Bank of India to support it.

Also read: India’s trade deficit biggest in five years, to worsen outlook for Indian rupee

Although it helps exporters, a weak rupee can widen the country’s current account deficit (CAD, when imports exceed exports) as India imports over 70 per cent of its total oil requirements. India is currently on the negotiating table with the US on the critical issue of oil imports from Iran.

The Trump administration is seeking to stall Iran’s oil supply to other countries from 5 November, threatening importers with sanctions for continued trade.

Sources said that even as India tries to negotiate, the situation remains unclear and oil majors are putting in place alternative mechanisms to avoid any major disruption.

“All this put together can put more pressure on the rupee and the CAD. The situation is going to remain volatile for some time,” a senior State Bank of India official said.

India’s CAD increased from $14.4 billion in 2016-17 to $48.7 billion in 2017-18 – from 0.6 per cent of GDP to 1.9 per cent.

While experts had predicted the rupee’s historic fall to 70, most projections had timed it around the year-end.

Also read: Indian forex reserves under new pressure as rupee crashes to all-time low

In the last RBI monetary policy, the central bank’s governor Urjit Patel had warned of a currency war and underlined the need to “to run a tight ship”.

Experts said the government must focus on maintaining macroeconomic stability to reduce the impact of the ongoing crisis-like situation.

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